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    7 Replies Latest reply on Jan 19, 2012 11:35 AM by chris1985

    Loan forgiveness...???

    mailee0515 Wayfarer

      I bought a business last year and I was doing well until this year.  Life happened and I've fallen on hard times.  I've put in all my savings (nearly $100K) and was hoping that I would be able to change my life around.  Previously before that I had destroyed my credit because I was young and naiive.  I bought my house when I was 22 and was tricked into the subprime mortgages that has everyone filing for foreclosure and I have one item in collection that I'm trying so hard to get paid off.  I've no other debt besides my student loan, I also work FT besides managing my store and am working hard with my mortgager to get a loan modification.  I'm already into my first year of business and I would really like to keep going.  However, I need a loan (roughly only about $45K) to add inventory and some capital.  Every single bank I go to has declined my application.  It seems like all they look at is your credit; no one cares that things happen in life and that people make mistakes.  Without a loan, I may need to give up my business that I've saved my whole life for.  I can't believe that no one is willing to give me a chance.  I don't know where else to turn to.  I want to keep my home and I want to keep going with this business.  Any suggestions??

        • Re: Loan forgiveness...???
          LUCKIEST Guide

          Welcome Mailee. Yes there are people out there who would like you to succeed.


          We would like you to keep your house and keep going with your business.


          Suggestions: Where are you?? What kind of business??


          For how long will you need the loan?? And how will you pay it back??



            • Re: Loan forgiveness...???
              mailee0515 Wayfarer

              I'm located in MN.  I have a liquor store in the city of Maplewood and my annual revenue for the first year was roughly between $300-400K.


              I only need the loan for two year just for a little flexibility but I plan to pay it off early.  I will pay it back with the revenue I receive since this will be my only loan for the store.  I also work FT as an HR Imaging Specialist so if need be, I can use my regular income as well.


              Thanks for replying.  I really need suggestions because I don't want to shut down.  Owning my own business is something I've wanted my whole life.

                • Re: Loan forgiveness...???
                  Barky Dog Tracker

                  Hi Mailee,


                  Definitely sounds like you are in a tough spot.  Almost all small business owners have been in the same position at least once.  I really feel for you.


                  Just a few questions to help us better understand your position:


                  • Revenue of between $300-400K is great, but what was your profit?  As you know, you can bring in a ton of revenue, but if the profit isn't there, it is a losing proposition for you.
                  • While you are working your other full-time job, who is running your store?  How much are you paying them in total compensation (including any benefits)?
                  • Have you already tapped your friends and family as a funding source?  If not, I wouldn't suggest positioning it not as a loan, but look for an opportunity to make them "Investors" in the business.

                  Looking forward to learning more...



                    • Re: Loan forgiveness...???
                      mailee0515 Wayfarer

                      I broke even according to my numbers and my accountant but it doesn't seem like it.  Since my accountant also left his job before finishing my finances, I wasn't able to get the complete financials and I am in a fix right now trying to get things together.  Although $300-400K seems like a lot, I saw nothing in it although I'm not surprised.  When the store it was nearly empty.  Instead, I poured my savings in the stocking the store up didn't thinking that I would be able to bring in so many customers since the previous owner didnt'.  In my first year, I had projected to not profit because inventory costs are very high these days, plus I had a $75000 loan that was financed by the previous owner.  And, I think this was where I made the biggest mistake of all.


                      When I bought the store, the previous owner showed me his finances (he never had an accoutant and did all his accounting by himself).  He also owed back taxes to the IRS for the business which we weren't aware of and made sure to ask before purchasing but were deceived into.  This created a huge headache because it took 2 1/2 months to clear these issues.  By then, we had already passed the busiest months (Nov-Dec) and we could not order any inventory since the previous owner had took off overseas (convenient, right?).  According to his fnances, we thought the store was really profiting so we all had a agreed on a fix amount for the $75000 loan for $5000/month at 0% interest.  Little did we know that that was way too much for a payment and that we would not be able to meet the amount accordingly.  Of course, we are still making payments and are current but it is taking too much of our budget.  So, this is where we are struggling.  I only have 4 more months and I'm done paying that huge loan but I'm struggling to make other ends meet since our rent also increased tremendously on top of more inventory to meet demand.


                      During this ordeal, my father also had a stroke and both his kidneys failed.  His medical insurance doesn't cover all the bills so I've had to use the funds at the store to pay the bills.  My brother manages the store FT while I work FT and work at the store PT.  Since it is family-owned luckily I don't need to have employee compensation. 


                      I've already tapped in all my friends and family members as funding sources but I need a little extra more because I need to pay off that loan; $5000/month is way too high.  I've looked to banks and credit unions for an investor since I only need to pay off an inventory bill and pay off that huge loan, therefore I feel like I only need about $45-50K but I've denied by everyone because of the mortgage.  The great thing is that I've been able to turn around the store and more and more customers are coming from my competitors because my prices are really reasonable and I treat them with respect.  I'm starting to not meet the demands beacuse I need more capital for inventory.


                      I really don't want to lose the business.  All my life since I remember stepping on American soil from a refugee camp, I wanted to own my business and make life better for my parents.  I made a few mistakes along the way as I rushed things a little too bit because I was very excited.  This opportunity just came along and I never planned accordingly and that's where I made a huge mistake.  If I can just get a loan to pay off the remaining of the loan and pay off one of my bill, I can turn the store around so fast, I'm so confident because my customers keep coming back for more and are very loyal despite not having a lot fo the things they want, they are still here to support me.  This is where my passion is and why I went to school for business.


                      But, I feel like lenders don't care anymore and only look at your credit.  I wish they would know that people mistakes and things happen in life that are sometimes out of your control.

                        • Re: Loan forgiveness...???
                          Barky Dog Tracker

                          Hi Mailee,


                          Thanks for such a detailed response.  First off, let me say that I'm really sorry to hear about your father's stroke and kidney failure.  Medical expenses are one of the biggest reasons people file for bankruptcy.  It is a huge burden.


                          On to your business.  you're right- you should not have taken the previous owner at his word about his financials.  You needed to have an outside, impartial CPA review his books, and ask him the tough questions about why his numbers did not match up with reality.  But, that ship has sailed (literally), so we need to deal with the present reality.


                          It's a bit confusing- to whom are you paying the $5,000 per month?  You're right a $5,000 monthly payment would be a huge burden to any small business.  Are you paying the $5K to the previous owner, who did not provide accurate financials to you and failed to disclose back taxes owed to the IRS?


                          My general advice is that you get hyper-focused about generating profit - and now.  Take a hard look at all you marketing activities.  Focus more of your energy on what is providing the best return on investment and less on what is not working.  Become fanatical about cutting your costs anywhere you can.  Small savings here and there can add up big time.  Also, don't be afraid to renegotiate cost with ALL of your vendors.  Here's the thing- if you can increase your profit and reinvest that money back into the business- that is as good as a loan.  No wait, it's even better, because you don't have to pay it back.



                            • Re: Loan forgiveness...???
                              mailee0515 Wayfarer

                              Thanks for your reply.  Yes, I was so wrong about not having my accountant look at his books.  The biggest lesson I've learned is that you don't do business with family because you take their words at face value (previous owner was a close cousin so we trusted his words) and then you regret it later.


                              The $5000 is being paid to the previous owner.  Initially I wanted a start up loan but since no bank was willing to work with me because of my credit, the previous owner financed the other half of the purchase price for us.  We agreed on a $5000 payment per month because according to his books, I assumed (big mistake!) that the business was profitting since he grossing anywhere between $30-40K per month.  We are very close to paying that loan off to him but we are having a hard time meeting our other bills such as rent (gone up) and inventory (demand is high).  I barely have enough to meet my customer's demands.  Luckily, they are very loyal and understand what we are going through but at this rate, I don't know if I can make it past the next months.


                              My goal is to pay that big loan off fast!  It's taking a huge burden on me.  I've tried cutting back everything I can but it seems like it keeps spiraling down.  I feel like my only option is to sell it but even if I did, I'd get nothing out of it.  If I can at least pay that loan off, I feel like I'd be on track since I would have extra money to put into marketing and bringing in more and new products to the store.  Plus, I've already put so much effort and invested so much that to back up now would such a dissapointment and failure.  It's putting so much stress on me that I've started to have major migraines and I'm only 28!


                              Huh, I don't know what to do anymore

                                • Re: Loan forgiveness...???
                                  chris1985 Tracker

                                  I want to preface this by saying I'm not a lawyer and have not seen the agreement you had with the previous owner and you might want to get in touch with a lawyer for a free consultation. Having said that: I would stop the $5,000 payment for a while and try to get in touch with the previous owner if you haven't already. Read over the agreement, see if there is anything in that could help you out. If he lied that would change the situation in a lot of cases. If you can get in touch with him, tell him your not happy about it and you are going to stop the current payments. Maybe he would even be willing to change the payment plans if you want to continue paying. Maybe he thinks some money is better than no money. I work in a SBA department at a National lender (actually based in St. Cloud, MN) and it would be hard for any banks/lenders to look past the bad credit, bad business financials (no dips in cash flow) and the overall situation. It sounds bad but it's still a business to these banks, even though a lot of us care. On a side note, I would try some free advertising options like social media, websites, etc community events, etc... I hope your father is doing better, and I hope this situation gets better.